On election eve, state of US economy a blurry one
Surging prices straining family budgets
WASHINGTON, Nov 2, (AP): Help-wanted signs are everywhere. Employers are posting nearly two job openings for every unemployed American. Hiring is on track for its secondstrongest year in government records dating to 1940. And the economy grew solidly over the summer.
From certain angles, the nation’s economic picture looks like a healthy one.
But the scene is being photo-bombed by an unsightly intruder: Chronically high inflation. Surging prices are straining family budgets and inflicting hardship on the most economically disadvantaged households. What’s more, the Federal Reserve’s drive to tame inflation through much higher interest rates is raising the risk of a recession by next year.
With voting underway in the midterm congressional elections that culminate next week, many Americans are gloomy about the outlook for the economy and their own finances encouraging news for Republicans who hope to regain control of Congress and ominous news for President Joe Biden’s congressional Democrats. A poll conducted in early October by The Associated Press-NORC Center for Public Affairs Research found that 46% of people felt their personal financial situations were poor, up from 37% who said so in March.
America’s economy is in a confusing place 2½ years after COVID-19 upended business as usual. The brief but deep recession that erupted in the spring of 2020 was swiftly followed by an explosive recovery that overwhelmed global supply chains, causing shortages of goods and labor and fueling price pressures that have yet to ebb. What remains is an unusual blend of crushing inflation and a robust job market.
“The data,” said economist Megan Greene of the Kroll Institute, “is all over the map.’’
Many workers have received decent pay raises from employers who are desperate to attract and keep staffers. But higher prices are wiping out those pay gains. Adjusted for inflation, hourly pay fell 3% in September from a year earlier - the 18th straight monthly drop.
“Wage growth isn’t keeping pace,’’ Greene said. “It’s great that people have jobs. But their standards of living are being whittled by inflation.’’
Here’s a closer look at the economy’s vital signs, which are sending mixed signals to policymakers, businesses, forecasters - and voters:
The overall economy
Perhaps no economic barometer has been as head-scratching as the gross domestic product - the economy’s total output of goods and services. After surging 5.9% last year, the best mark since 1984, GDP fell into a funk in the first half of this year. It shrank at a 1.6% annual rate from January through March and then by 0.6% from April through June.
The first-half economic contraction was caused by factors that didn’t really reveal much about the health of the underlying economy. The decline was driven by a drop in companies’ inventories, a cyclical development that often reverses itself soon after, and a surge in imports, which reflected Americans’ keen appetite for foreign goods.
Last week, the government reported that GDP returned to growth in the July-September quarter, expanding at a solid 2.6% annual rate.
Yet the new picture wasn’t entirely cause for celebration. Consumer spending, which accounts for about 70% of U.S. economic activity, weakened last quarter: It rose at just a 1.4% annual rate, down from a 2% rate in the April-June period.
Jump in exports
The entire third-quarter increase in GDP could be attributed to a jump in exports and lower imports, which together added nearly 2.8 percentage points of growth. That performance isn’t likely to be repeated. A stronger dollar has made American goods pricier overseas. And Russia’s war against Ukraine has contributed to a weakening global economy and lower demand for U.S. goods.
“If you look under the hood on those third-quarter figures,” Greene said, “it suggests that it wasn’t that strong, and we can’t expect it to continue.”
The economic outlook is also darkening as the Fed steadily jacks up interest rates. Since March, the central bank has raised its benchmark rate five times, including three straight hefty three-quarter-point hikes. It’s expected to do so again on Wednesday and in December.
The Fed’s policymakers have been aiming for a “soft landing” - raising rates enough to slow growth and bring inflation toward its 2% annual target without triggering a recession in the process. Most economists, though, doubt it can be done. They foresee a recession beginning sometime in 2023.
One reason for widespread skepticism about the Fed’s ability to stick a soft landing is that inflation is proving harder to defeat than policymakers had expected. The result is that more and larger rate hikes than originally envisioned will likely be required.
In September, the government’s consumer price index rose a higher-than-expected 0.4% from August and 8.2% from a year earlier. Worse, so-called core inflation, which strips out volatile food and energy costs to better assess price pressures, climbed 6.6% from a year earlier. That was the biggest such jump in 40 years.